Wednesday, May 23, 2007

Let Debate Continue (it's better than fighting a trade war)

I wrote this post in reply to Aldon Hynes on his Blog Orient Lodge, but the process of posting a comment got lost in multiple attempts, so I am posting it here. To read Aldon's response and to follow on to his Blog, read his comments on my original piece about provoking World Wars III and IV.

My response to Aldon Hynes:

Nice to meet you Aldon Hynes in Blog Land.

I did not mean to polemicise a difference of opinion with you. Lost Legacy is about commenting on the widespread misuse and misattribution of ideas to Adam Smith when these ideas have nothing to do with his Works (primarily his Theory of Moral Sentiments and his Inquiry into the Nature and Causes of the Wealth of Nations, but also student notes of his 1762-4 Lectures in Jurisprudence, all published in low priced scholarly editions by Liberty Press, Indianna). People familiar with his Works read Lost Legacy and others are prompted to read what he actually wrote. I hope you are encouraged to do so too.

You wrote:

“NAFTA's explicit inclusion of environmental issues in dispute settlement jurisdiction didn’t start a World War. Why would they in other trade agreements? It appears as if Kennedy is just being a polemicist, not seriously interested in thinking seriously about how trade policies affect our world.”

NAFTA was intensely amended by Congress, and the Canadians and Mexicans, to reach agreement on opening their borders to fairly extensive measures of freer trade. It was not about closing borders to trade until the partners reached the ‘level playing field’ of environmental concerns. If NAFTA included the Kyoto Agreement it would not have passed the US Congress. If the Kyoto countries closed their borders to trade with non-Kyoto or similar protocols countries, it would have produced a seriously de-stabilising situation in world affairs. If the US closed its borders to non-Kyoto countries (India, China, UK), assuming such a provision would pass Congress and a President’s veto, it would do likewise.

It has always been easier to destroy trade agreements or to argue over their imperfections. ‘Jealousy of trade’ and naïve hostility to trading countries has a long history. Both David Hume and Adam Smith (and many others) wrote about the phenomenon. Wars were fought over such jealousies, the entire colonial and later, imperialist, episode was caused by them. What you propose (seems directed at China today; was Japan in the 1960-80s, perhaps Russia in 2015) would destabilise the world, and risk World War III (and IV between the ‘victors’).

I do think ‘seriously about how trade policies affect our world’, but this has nothing to do with how Adam Smith thought in the 18th century.

David Korten (When Corporations Rule the World) says ‘these same conditions are fundamental to Adam Smith's famous assertion in The Wealth of Nations that the invisible hand of the market translates the pursuit of self-interest into a public benefit.” Smith said no such thing in Wealth of Nations or in Moral Sentiments or in Lectures on Jurisprudence, nor in his Correspondence, or any other of his writings, such as the History of Astronomy.

He never related the metaphor of the invisible hand to markets or market behaviour. He used the metaphor only three times in his million published words, and never in the context claimed for it by Korten, or any of a hundred other authors whi make the same allegation. It is a myth of attribution, introduced to sanctify neoclassical partial and general equilibrium economics. Read through the archives at adamsmithslostlegacy.com to see why this is so, and what he meant. I am reading a paper on this subject at George Mason’s University at the 34th Annual Conference of the History of Economics Society on 10th June, next month: ‘Adam Smith’s invisible hand: from metaphor to myth’.

Eldon adds:

“I have no idea where Kennedy gets such an absurd idea [World War II and IV]. It is either more extreme polemics, like his comments about starting world wars, or it reflects a profound lack of understanding about how international trade policies work.”

I may be accused fairly of ‘extreme polemics’ and that I have a ‘a profound lack of understanding about how international trade policies work’ (though as an economist I do not think so) but I do have ‘a profound understanding’ of what Adam Smith said and what he didn’t. Hence in reading how Helen Joyce describes the invisible hand, I find her totally unconvincing in what she claims about Adam Smith:

“Smith was profoundly religious, and saw the "invisible hand" as the mechanism by which a benevolent God administered a universe in which human happiness was maximised.”

There is much doubt among scholars that ‘Smith was profoundly religious’. He was brought up in early 18th-century Scotland, which at that time and for much longer, though at a diminishing degree, was ‘profoundly religious’. His widowed mother was very religious in the Protestant tradition. Smith went to Oxford University, aged 17 (1740) to study for ordination into the Church of England and to become a Minister in Scotland in the Episcopalian Church (in communion with the C of E). But he changed his mind while at Oxford from reading moral philosophy, the classics and Newtonian natural science. He suffered a depression in 1743-4 and left Oxford in 1746, before completing his course, and returned home, determined not to continue his mother’s and his guardians’ plans for a Church career.

The Church of Scotland (often in bitter doctrinal disputes with the Episcopalians) ruled Scottish social life, especially the four universities. Society was also troubled by the activities of the ‘zealots’ (a kind of Taliban wing of the Church) who hunted for signs of dissent, apostasy, deism and atheism. Smith, with no wish to upset his mother, and in common with most other intellectuals, kept his views private, though he consorted openly with David Hume, whose public and private utterances barred him from an academic career, and after his mother died in 1784, he removed key religious passages from Moral Sentiments in its last edition (1789). He died soon afterwards, showing his non-religious beliefs (it not being a good move to reveal his scepticism about God's existence a few weeks before he died and was supposed to ‘meet his maker’).

However, Helen Joyce is wrong to assert that Smith saw ‘the "invisible hand" as the mechanism by which a benevolent God administered a universe in which human happiness was maximised.’ Nowhere does he assert such a statement.

An exegetical reading of Moral Sentiments shows his careful camouflage of his true non-religious beliefs. Much the same behaviour was noticed in the later stages of Soviet influence over intellectuals – they mouthed the expected platitudes to mislead the ignorant ‘commissars’ who watched them closely.

Eldon expresses disappointment because I did not ‘stop over here to talk more seriously about how we can understand Adam Smith in today’s world’. I think I have shown that the best way to understand Adam Smith is to read what he wrote as he wrote it, and not to rely in third-hand accounts about what he is supposed to have said, or a few quotations taken out of context from his Works, and from the context of the society in which he lived.